Share Price Increase to $10.93, page-105

Hi Success4I.

There are many subtle and not so subtle differences in ones approach to investing, even for those of us that are happy with the label "value investor". Simple black and white rules, in my opinion, won't suffice. I'm afraid.

What you are seeking to discuss, in the XJO thread is very broad in scope and could really only be answered as part of a comprehensive discussion of the art and science of investing.

Even the label of "investment grade" is open to discussion and opinion. For instance what is a sensible investment to me, may not be to you, for a whole host of reasons. For example, if I have particularly strong understanding of a particular industry, I may be able to find opportunities there that others may want to steer clear of. Although it is true, that certain business' posses superior economics, these businesses will generally be highly sought after by the market. As such, they will usually carry a price to match.

The question of business quality is only part of the equation. The question of purchase price is the other. If I have a sound understanding of a business and a high degree of confidence in the cash I can expect to extract from it, then if I can pay a low enough price, it makes sense for me to invest, regardless of whether or not it is designated "investment grade".

Also, the real question is what is an effective portfolio. All shares come with a degree of risk. The less confidence you have in a business, the smaller the proportion it should be of your portfolio. This confidence level may be due to risks inherent in the business, or due to ones lack of understanding of the business. If the risks are too high, perhaps the best weighting should be zero!

Some of these risks will be external to the business and may be correlated. So a portfolio that reduces some of these risks will be, ideally, compost of shares that have uncorrelated risks. But of course, in the real world, this may be easier said than done.

My opinion is that if one uses wide diversification as the primary means of risk minimization, then one can achieve the same, or better, result by simply buying an index (all with no effort on the part of the investor). Another alternative, in this sense, may be to use a fund manager.

My style of "value investing" is fairly focused. I invest in only a few things that I think are of sufficient quality for the price on offer at the time. I'm afraid I would not have a lot to contribute to a discussion that covers a broad range of stocks.

Sorry I could not be of more help.

Mars